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Income Responses to Tax Changes--Evidence From the Norwegian Tax Reform

Listed author(s):
  • Aarbu, Karl O.
  • Thoresen, Thor O.

Several studies, conducted on U.S. data, have found rather strong income responses to changes in net-of-tax rates when treating tax reforms as "natural experiments" and applying the differences-of-differences estimator. Like the U.S. Tax Reform Act of 1986, the Norwegian tax reform of 1992 entailed substantial increases in the net-of-tax rate for high-income earners. This paper provides measures of the elasticity of taxable income with respect to these tax rate changes. We control for the impact of other tax changes and several non-tax factors on income growth. Our estimates of the elasticity of taxable income with respect to the net-of-tax rate range between -0.6 and 0.2, substantially lower than similar estimates from analyses on U.S. data.

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Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 54 (2001)
Issue (Month): 2 (June)
Pages: 319-338

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Handle: RePEc:ntj:journl:v:54:y:2001:i:2:p:319-38
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  1. Austan Goolsbee, 1998. "It's Not About the Money: Why Natural Experiments Don't Work on the Rich," NBER Working Papers 6395, National Bureau of Economic Research, Inc.
  2. Robert A. Moffitt & Mark Wilhelm, 1998. "Taxation and the Labor Supply: Decisions of the Affluent," NBER Working Papers 6621, National Bureau of Economic Research, Inc.
  3. Richard Blundell & Alan Duncan & Costas Meghir, 1998. "Estimating Labor Supply Responses Using Tax Reforms," Econometrica, Econometric Society, vol. 66(4), pages 827-862, July.
  4. Karl Ove Aarbu & Thor Olav Thoresen, 1997. "The Norwegian Tax Reform; Distributional Effects and the High-income Response," Discussion Papers 207, Statistics Norway, Research Department.
  5. Aaberge, Rolf & Dagsvik, John K & Strom, Steinar, 1995. " Labor Supply Responses and Welfare Effects of Tax Reforms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 635-659, December.
  6. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association, vol. 51(n. 4), pages 773-88, December.
  7. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
  8. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association, vol. 51(4), pages 773-788, December.
  9. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
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